January 24, 2006

Page 15

Once you fix a company up to sell it, you really want it to stay fixed up.
A lot of the time, the buyer is looking to buy out a competitor so that they
can shut it down. Since your people know this, when the company goes up for
sale, they have a tendency to start heading for the hills, the best people
first. So, a company that puts itself up for sale, with the intent of staying
intact after the sale, had best do something about that.

Part of that was already taken care of. As a San Francisco-area high-tech
firm, Whole Earth Networks had offered stock options to its employees. The
stock wasn't publically traded, so the options were basically worthless.
However, if management wants to incent employees to stay until a sale is
complete, it can offer an "accelerator" on options. Normally, stock options
vest over 3-5 years, meaning that each month, some more of your stock option
becomes available for you to buy. Since stock in a company that isn't traded
on a public exchange isn't worth anything, most people don't buy their vested
options, though, so even though they could own the stock, they don't.

With an accelerator in place, what happens is that on a sale, your option
vests 100% and you can buy it on the spot. Since selling the company usually
means selling all of the stock in the company, the buyer agrees that they will
buy the employees' stock as well as the owners', so the employees get to
"flip" their option immediately - buying it from the old owner and selling it
to the new one. The employees then pocket the difference between their option
price and the sale price.

This sort of accelerator acts as a strong incentive for employees to stay on
until the sale, because if you are not employed as of the official closing
date, you don't get to participate. However, this doesn't do anything to get
people to stay around after the date of the sale. Even in the best of cases
in any sort of buyout, things get shaken up and people become afraid for their
jobs, so Kevin offered a second level of incentive to key employees. The key
staff of Whole Earth was given an employment contract that said that for six
months after a sale, if they were laid off or they had a substantial reduction
in their responsibilities (an "effective termination," where they had their
job duties taken away but they weren't actually fired), they would get a
severance package of six months' pay.

By addressing these various issues, Kevin had taken Whole Earth from, frankly,
a pig in a poke, to being a saleable property. It was still substantially a 5
million dollar per year regional ISP, but at least it was healthy instead of
sickly, and it had something that looked like a potential future.

These cleanup activities had been taking place in parallel with the search for
a buyer. There were any number of inquiries, but the company that finally
took the bait was GST Telecom of Vancouver, Washington.

Excerpted from http://www.satanic.org/gst/
Real Press on the GST Buyout of Whole Earth Networks
There's been rumours that GST is buying WENET, the Bay Area ISP which is made
up of Hooked Inc. and the WELL's Internet branch.
Well, they're true. They're gonna fuck over some other poor bastards, just
like we were. Read all about it.
Eric reports: word from the inside is that things are already getting fucked
beyond belief. The recent loss of key technical people signals the beginning
of yet another exodus away from a once great community ISP. One short-terming
staffer's suggestion for naked Twister at the "team-building company picnic"
was met with censure and disapproval. In another painfully ironic twist, the
"internal communications director" of the tech staff sends out all email in
Microsoft Word attachments... which no one on the technical staff can read in
their UNIX mail clients. More to come... [6/19/98]
Good luck to all the WENET employees and customers. Satan knows, you're gonna
need it.